Outsourcing: An Effective Strategy

1
Outsourcing An Effective Strategy

• By
• Vida Atchulo

2
Introduction

• Over decades, outsourcing has become the topic of
  debate in all spheres of life. Todays political
  campaigns do not overlook this important issue.
  The stance of this paper however, is to look into
  the implementation of the strategy.

3
Definition and history of outsourcing vs.
comparable strategies

• For centuries, outsourcing has been founded on
  concepts of trade within industries.
• Prominence among the British textile industry
  during the 19th century.
• In the 70s, it became prevalent in the
  technological companies in US.
• payroll
• financial administration as a means of
  streamlining activities
• A firm engages in outsourcing when it has an
  outside entity perform a function (s) for it.
• Off-shoring can be the same as outsourcing or
  not. It depends on who owns the activity. When a
  firm moves part of its domestic operations to
  another country, it is termed an offshore
  activity.

4
Political implications

• The phenomenon of outsourcing has created an
  incentive for politicians to scramble to get
  ahead of the political curve. For instance, the
  accelerating trend of foreign outsourcing has
  contributed to U.S. job losses in recent years,
  and has become an issue in the 2004 elections,
  and, as contained in the presidents annual
  report to congress on the health of the U.S.
  economy, states that outsourcing is just a new
  way of doing international trade and more
  things are tradable than were tradable in the
  past, and that is a good thing.
• On the contrary, the democratic senator from
  Massachusetts, a fierce political opponent to
  president Bush, has consistently reminded voters
  that more than 2 million jobs have been lost
  during Bushs White House tenure. He promises to
  keep more jobs at home by taxing offshore
  businesses of U.S. corporations to cover other
  parts of his tax reform program.

5
Political implications cont...

• The biggest concerns about outsourcing always
  seem to be about jobs and competitiveness.
• Research and statistics have indicated startling
  numbers that 3.3 million U.S. jobs are expected
  to be lost overseas by 2015, according to a
  recent report by Forrester Research.
• Similarly, according to Deloitte consulting, 2
  million jobs will move from the United States and
  Europe to cheaper locations in the financial
  services business alone.
• Frontline World reported that over half of the
  fortune 500 companies have moved jobs offshore,
  including famous names such as Oracle, Dell,
  HBSC, Delta Airlines, Novartis, J.P. Morgan
  Chase, Hewlett Packard, American Express, and
  more are expected to follow.

6
Political implications cont...

• Projected numbers of U.S. jobs to move overseas
  by 2015 in various fields are as follows
• Management 288,281
• Business 348,028
• Computer 472,632
• Architecture 184,347
• Life Sciences 36,770
• Legal 76,642
• Art, design 29,564
• Sales 226,564
• Office 1,659,310
• Source Forest Research Inc. Nov. 2002

7
Benefits

• Improved efficiency is one of the most important
  reasons for which an organization would decide to
  outsource.
• Access to experts and specialists is another
  reason for which firms choose to outsource some
  of their functions.
• Outsourcing is a good way to achieve better
  control over difficult or complex functions.
• Outsourcing allows a company to improve its
  morale and focus.
• Outsourcing frees up the business to let the
  company focus on its strengths.
• Another great benefit that can be achieved
  through outsourcing is the reduction of capital
  expenditures.
• Outsourcing is also a good way to utilize
  resources that are not available internally.
• Not only developed countries gain advantages from
  outsourcing, but also developing countries do.

8
Criticisms

• For just about every benefit of outsourcing there
  is equal an offsetting criticism. In fact, what
  can appear to be a benefit can turn into a
  criticism, depending on the business case and
  implementation process. This dichotomy can make
  it difficult for businesses to make the correct
  decision whether or not to outsource.
• First and foremost is a joint criticism of
  outsourcing, shared by management and consumers,
  the concern that the quality of performance of
  the outsourced service will not meet the level of
  expectations that the company performed and the
  customers grew accustomed to.

9
Criticisms cont.

• A second multi-pronged criticism of outsourcing
  involves the negative impact on work, labor, and
  the economy. From the perspective of U.S.
  citizens, the criticism revolves around the
  exorbitant costs required to transfer control of
  the labor process overseas to another business.
  According to 1,000 Americans polled in August of
  2004, by Zogby International, 71 of Americans
  believe that outsourcing jobs overseas hurts the
  economy, while 62 believe that the government
  should impose legislation against the transfer of
  jobs overseas.
• According to Business Week, one out of three
  private-sector jobs are at risk. Outsourcing is
  now occurring at a breathtaking pace. Once work
  becomes routine, especially service work, it can
  potentially be outsourced. There are numerous
  estimates on how many jobs are being lost and
  will be lost in the future to outsourcing. The
  associated threat to labor impacts the work force
  psychologically and is evident in worker
  insecurities and fears over losing jobs.

10
Conclusion

• Outsourcing can increase efficiencies in cost,
  quality, service, and speed which, in turn, frees
  up time for companies to focus on their core
  competencies and future strategy. However,
  outsourcing is not always implemented
  successfully. When a company outsource functions,
  it still has a responsibility to the public to
  remain a going concern. A company should choose
  wisely when determining which functions should be
  outsourced and understand that cost savings
  arent always recognized. If a company follows
  the steps to successful outsourcing and choosing
  the right business partner which it can trust,
  odds are in its favor that it can reap all of the
  benefits to outsourcing. Outsourcing is an
  effective strategy when implemented properly.

11
Questions Comments